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Strategy Canvas Analysis for Alibaba Online Business

1.0              Introduction

Kim and Mauborgne (2014) define strategy canvas as a central tool for conducting diagnostics. It uses line graphs to plot factors or functions in a given industry against their importance to the organization. The graph then overlays industry and competitor benchmarks. An analysis of the line could be essential in formulating a competitive strategy and providing an action framework for the organization. Strategy canvas makes use of graphical images which make it easier for the management to make decisions on how to improve the value proposition of the firm (Osterwalder & Pigneur, 2008). In addition, it guides the management into anticipating and enhancing its future prospects by adjusting its current strategic landscape. This model is associated with the blue ocean strategic move, which enables the firm to stand out from the industry value curve. The process of formulating a strategy canvas entails capturing the current state of the e-retail market place. This will create clear understanding of the factors that firms in a given industry value. In the long run, an analysis of the e-retail industry will direct actions of firms such as Alibaba towards reorienting their focus from customers to non-customers and from competitors to alternatives in the industry. This will help maximize profitability. It is upon this understanding that this report maps the competing factors and offering levels for Alibaba.

2.0              Background of Alibaba Group

Alibaba Group Holding Limited, commonly known as Alibaba, is multinational conglomerate that is specialized in e-commerce, internet retail, artificial intelligence and technology. It was established in 1999. The company provides its customers with a range of services comprising of business-to-business, business-to-consumer and consumer-to-consumer sales services through its web portal and mobile applications. It uses an electronic payment system, together with cloud computing and shopping search engines to ensure efficiency of operations and quality services. Alibaba operates diverse businesses spread across numerous sectors. As a result of its success, it is classified among the most admired companies globally. Its current market capitalization is estimated at $542 billion. It is among the top 10 biggest and most valuable companies in the world. It also has a high brand value. Alibaba operates in more than 200 countries, hence considered among the largest retailers globally. Its online sales and profit margins have since 2015 beaten all US retailers including Amazon, eBay and Walmart combined. The company has diversified its portfolio into venture capitalism through the Alibaba Entrepreneurs Fund, AI and media industry. It is because of the intensive success of Alibaba that it becomes an organization of interest in this paper.

3.0              Strategy Canvas Analysis of Alibaba Online Business

3.1              Offering Levels/ Competitive Offerings

This factor depicts what customers receive from the incumbents in the e-retail industry. Offering levels are determined using quantitative scales such as surveys and market research. According to research by Lüftenegger, Grefen and Weisleder (2013), e-retail customers value a number of things which leads them to preferring a given retailer over another. First on the list is a personal touch point. This refers to ways in which customers can reach out and interact with a business. This could be in form of person-to-person, applications and websites among other forms of communication. Touch points are important in influencing perception of customer and helps them form a positive or negative opinion about an organization. Customers using e-commerce prefer touch points that are not only interactive, but also capable of displaying information to current and prospective customers. The main purpose of a touch point is to better the customer experience while they interact with a brand, service and products across multiple channels. Touch points directly impact the wiliness and intention of a customer to purchase and use a product or service. As a result, it impacts all the five stages of the buyer decision making process theory. This includes problem recognition, search for information, evaluation of alternatives, purchase decision, and post-purchase behavior. Touch points are significant in both business-to-consumer and business-to-business settings. It is an element of the integrated marketing communications.

The second key competitive offering is ease of shopping or purchase. It is believed that e-retail revolutionized the traditional retail industry since it eases the shopping experience. A research by Greenfield Online showed that 99% of tech savvy customers with access to internet tend to reduce their visits to brick-and-mortar stores in favor of e-retail.  Ease of shopping entails ease of making price comparisons and ability to shop conveniently at any time. On the other hand, those who preferred physical retail enjoyed the privilege of seeing, touching and inspecting goods while purchasing. Others enjoyed the gratification of making a physical purchase and walking with it from a store. Generally, most customers enjoy the ease of shopping via e-commerce with the only problem being their inability to inspect the goods. This means that in the near future, e-commerce should find a way to allow physical inspection of the goods before making a decision on what to purchase. Some retailers prefer sending varieties of products to customers so they can select their most favorite items. E-commerce further allows customers to easily shop around, compare prices and quality of products based on descriptions given.

Third, e-retail customers prefer brand promotions and exclusive tie-ups. Exclusive tie up refers to a scenario where a brand decides to enter into an agreement or contract with a provider of complementary services to help sale its products. It simplifies supply chain thus, allowing the manufacturers to focus on areas of key competence. A case is point is the tie up between Flipkart and Xiaomi. This makes it easy for customers to order and purchase exclusive products and services. In addition, such tie-ups attract high rates of brand promotion including discounts to attract and retain customers to the platform. At the same time, e-retailers use promotions to attract new customers and retain current ones. This is the reason for Black Friday Promotions and the China’s Singles Day. Customers also prefer flash sales where an e-retailer reaches millions of customers in the shortest span of time possible.

Fourth, e-retail customer’s value detailed product and service reviews. Reviews are very important in endearing a service or products to new customers. It is therefore essential that a retailer provides an opportunity for customers to review products. Likewise, the management should ensure that it interacts with customers and help them solve complains raised on their platforms such as social media. This, in return, creates credibility and attracts more customers. This is a result of the positive feedbacks which will convince other customers to try out an e-retailer.

3.2              Competing Factors/ Differentiation

These are the attributes considered by customers while making purchasing decision. Customers are often keen on identifying differences and similarities, as well as advantages and disadvantages of given characteristics of a firm’s products and services. They also tend to scrutinize the uniqueness of a value proposition provide by a firm against its rivals (Osterwalder & Pigneur, 2008). The competing factors for Alibaba will be weighed against dominant rivals in the local Chinese and international markets. According to eMarketer (2018), the fiercest retailers in China include Alibaba which commands 58.2% of the market share followed by JD.com (Jingdong), Pinduoduo, Suning, Vip.com, Gome and Amazon China with 16.3%, 1.9%, 1.8%, 0.7% and 0.7% respectively. Others with small market share include Yihaodian, Dangdang and Jumei. Internationally, the most fierce rivals include Amazon, eBay, Rakuten, Zalando and Groupon. These firms invest and compete on a range of factor. Lüftenegger, Grefen and Weisleder (2012) add that it could also detail features that customers care about when using a certain e-retailer. They are discussed as follows:

3.2.1        Product Selection and Range

                E-retailers have to stock a wide range of products and services in order to attract more customers. Buyers want choice and thus, offering them with a wide variety makes them interested in browsing through a retailer’s website and application than when offered with no varieties. Apart from providing alternatives with varied quality and price range, e-retailers such as Alibaba have to provide complementary goods so that a customer can purchase and satisfy all their needs in a go. Offering a complete package makes an e-retailer more competitive than others. For instance, Alibaba offers both imported and hard to find brands in addition to low quality and premium goods at varied price ranges. This makes it admirable for both the rich and low income consumers.

3.2.2        Price

                Providing goods and services at the lowest possible prices is an incentive in attracting and retailing price sensitive customers. Apparently, most of the user of online commerce prefer shopping around to compare prices. Therefore, giving them a quality value proposition at the lowest prices possible compared to rivals will enable a firm to stand out. Osterwalder and Pigneur, 2008) note that the secret to maximizing sales and increasing turnover, thus attracting higher discounts from suppliers is by selling at a low price. This encourages more customers to purchase from the site. As much as the transactions will provide low profit margins, the high sales volume will help in achieving economies of scale. This is the case with Alibaba, which adopts the cost leadership strategy. In regard to pricing as a value proposition, Leavy, (2015) specifies that e-retailers have to provide full product description and details, reviews and even price.

3.2.3        Shipping

                All online retailers have the obligation of providing shipping services to their customers. This activity represents the last mile of the supply chain and it is essential in ensuring that the goods reach customers and also when making returns. The process has to be faster, safe and easy for the customer to understand. In addition, a firm could offer faster shipping, auto-shipping, local in-store pic-up and free shipping options depending on circumstances. Alibaba charges customers but it has offers where customers could get an opportunity for free shipping from time to time, and depending on the size or weight of the product. It saves shipping information of customers for ease of retrieval of such data in care of repeat purchases. Prior to shipping, the products have to be properly packaged for identification and to reduce breakage.

3.2.4        Discounts

Discounts are important in attracting customers. Kim and Mauborgne (2002) observe that e-retailers who offer discounts in addition to loyalty programs tend to report higher sales volume which translate to high profit margins.

3.2.5        Information technology such as AI

This attribute receives the most investment among e-retailers. This is the biggest source of competitive advantage since it determines the efficiency of services, reliability of the electronic systems and the ability for the firm to collect, store, retrieve and use customer’s information to entice them into making purchases. Currently, e-retailers are automatic processes through artificial intelligence, robots, deep learning and drones. This has eased their operations while reducing costs. A case in point is Alibaba which serves a large number of customers. This makes automation and IT systems essential.

3.2.6        e-Commerce SEO

In a similar manner that the location of physical retailers is important, so is the location of an e-retailer on search engines. It is important that a firm invests in Search Engine Optimization (SEO) to make their products appear on the first page of searches. Basically, customers do not prefer scrolling through second pages. Visibility on search engines will enable customers to see the brand and access its website. As a result, it helps in improving sales and also promotes conversion of new customers.

3.2.7        Customer Service

Customer service is an essential part of retailing. There has to be a dedicated department that understands and deals with customer needs. The customer services have to be varied depending on age, occupation and product purchases among other attributes (Kim, 2005). The customer service handle should be easy to access and interact with. This will avoid customers becoming frustrated with the search process, product returns and complaints among others. Customer responses should be friendly, prompt and well thought out. There has to be toll free line for customers to gain direct access in case of a problem. E-retailers could use interactive devices to receive and answer to questions in real time.

3.2.8        Guarantee

This is an important attribute of e-retail. Such terms of service give customers peace of mind. Providing security and assurance to customers makes them prefer a retailer and this is a competitive advantage. It also helps foster trust because the firm comes out as customer oriented with low price guarantees, guarantee services and on-time shipping guarantees.

3.2.9        Queue

Traditional competitors use queues as a form of achieving competitive advantage. For instance, retailers with long queues discourage customers from returning to the stores. This, however, applies to the physical retailers. On the other hand, e-retailers have access to online platforms, but their ability to service orders in real time, and deliver to customers makes a big difference in attracting and retaining customers. Alibaba has invested in IT systems to facilitate processing of orders and making timely dispatch depending on their terms and conditions. In regard to these attributes, the strategy canvas for Alibaba and the e-retail industry is as depicted in figure 1 below.

 Figure 1: Strategy Canvas for Alibaba and JD.com in comparison to Physical Retailers.

4.0              Conclusion

This paper acknowledges the importance of strategy canvas in conducting diagnostics of the firm and the industry. It uses line graphs as evident with the analysis of Alibaba, JD.com and physical retailers. The graph is plotted to represent offering levels on the vertical axis and competing factors on the horizontal access. The offering levels include factors that are desirable to customers while the competing factors refer to attributes considered competitive advantages. This includes product selection, price, shipping, discounts, information technology, e-Commerce SEO, customer service, guarantee and queue. Summarizing these factors enable drafting of a strategy canvas from which Alibaba can identify areas to improve in order to create a blue ocean strategy that will see it serve new customers with new value proposition.